Thomas Xie is the CEO of the Shanghai-based LakeBTC virtual Bitcoin exchange.
LakeBTC is a platform where individuals, merchants and institutions can trade Bitcoins, lock down the prices, manage their exposures, and hedge their risks. The platform is one of the Big Four exchanges in the world that determine CoinDesk’s Bitcoin Price Index (BPI) and is quickly becoming one of the leading exchanges, recently receiving positive reviews at Cointelegraph’s Exchange Awards.
Cointelegraph: How did LakeBTC come into existence as a trading platform?
Thomas Xie: LakeBTC was started in March 2013 as an exchange initially for a small group of traders and other financial professionals from investment banking and commercial banking sectors. These guys have years of experience trading treasuries, currencies, commodities, and all types of derivatives and structured products.
They know capital markets inside out, and they trade Bitcoins as a hobby, just like playing Texas hold'em. Later that year, we decided to incorporate and run the exchange under the current name. Naturally, our investors and many of the people we recruit have extensive financial experience, and this is one of the important differences than other players in the field.
We are dedicated to building a Bitcoin platform with top security, excellent liquidity, and extraordinary customer service. As cryptocurrencies gained more and more exposures to the general public, LakeBTC is becoming one of the best Bitcoin platforms around the globe. Our years of risk management and internal control experience in financial industries build the most solid foundation for ensuring customers' fund and privacy being safe and secure.
CT: In June, LakeBTC became one of the big four exchanges in the world that determine Coindesk’s BPI. Could you elaborate on how this happened and the significance of this index?
TX: The CoinDesk Bitcoin Price Index (BPI) represents an average of Bitcoin prices from leading global exchanges. It is one of the most important reflections of the Bitcoin market as a barometer. It's not an easy job. Actually the entire process took several months. CoinDesk evaluated various aspects of our exchange including liquidity, volume,
security, order types, service terms and so on. A few weeks ago they finally decided to add our trading data to their CoinDesk BPI after strict scrutiny.
CoinDesk BPI is intended to serve as a standard retail price reference for industry participants and accounting professionals. Since the Bitcoin market is fragmented by nature, a trustworthy and reliable price index becomes extremely important to all financial products on top of it. Bitcoin derivatives and structured products need an underlier that is stable and difficult to manipulate.
I was made aware that Cointelegraph is also working on a Bitcoin index. We look forward to it and will be happy to join and contribute.
CT: Your Company is very security-focused offering SSL encryption and cold storage just to name a few. How successful have these protections been so far and do you plan to add any additional security features in the future?
TX: Yes, LakeBTC is very security-focused. Security, liquidity and service are three strengths we have and security is number one. SSL encryption, cold storage, Google Authenticator, SMS confirmations, etc. are several technical measures we currently employ. But people have to realize that a Bitcoin exchange is not only a technology company, but more importantly, also a financial one.
If Google failed, that's not a good thing but people can live with it. Same thing for Twitter, Youtube, Airbnb and so on. But if your bank failed? It's VERY, VERY bad. A financial firm faces many security challenges that are unheard of typical technology companies. The technological security mechanisms mentioned above are certainly very important, but what really matters to financial institutions are risk management and internal controls. Our team with years of experience in financial industries is working hard to ensure customers' fund and privacy being safe and secure.
CT: Similar to CoinBase, your exchange also offers tools for merchants. How many businesses have you worked and signed up to accept BTC so far?
TX: Honestly, not as many as we wanted. Our main focus is still on Bitcoin exchange and we put most of our resources on security, liquidity and service of the exchange business. Traders, miners, institutional investors and individuals are our main customers now. However, we will add more features related to Bitcoin wallet service and merchant tools in the near future and may add more hands on signing up new merchants.
CT: Given China’s restrictive stance on cryptocurrencies, have you faced any pressure from the authorities? Has the ban on third party processors affected your operations?
TX: Not at all. The latest official policy was published on December 5 by the five central government agencies including PBOC (People's Bank of China). It's clearly stated that Bitcoin is a type of commodity that people are free to own, buy, and sell. Other than that, everything else is speculation, hearsay or rumors. We are running a legitimate business with all required government paperwork.
That being said, there are a number of flash crashes and high-risk products provided by certain local Bitcoin exchanges. If there were a ban, it should be targeting those risky products and the foul players, not Bitcoin itself. The exchanges in question promise 0% fee forever and in the mean time are promoting high-risk businesses such as margin, short trading, and P2P lending without proper risk management. For example, there's an LTC flash crash to 1 CNY from 100 CNY in seconds, thanks to shorting trading in a platform.
“If there were a ban, it should be targeting those risky products and the foul players, not Bitcoin itself. The exchanges in question promise 0% fee forever and in the mean time are promoting high-risk businesses such as margin, short trading, and P2P lending without proper risk management.”
CT: Bitcoin aside, are there plans to integrate other cryptocurrencies in the future?
TX: In my view, Bitcoin is still in the very early stages of development. Market cap is still tiny, and ecosystem is not mature enough. Altcoins are far less strong than Bitcoin, the risk is high and the prices are easily to manipulate. LTC with margin/short trading flash crash just mentioned was a good (or bad) example. Again, security and risk management are our top priorities so we are very cautious, sometimes even conservative. When the time is right, we’ll consider it.
CT: You have recently rolled out dark pool trading. Could you explain what this tool does and how it benefits users?
TX: From time to time we have users who come in and want to either buy or sell in large amounts, say 200 BTC. If you simply place an order like that it will obviously drive price up and down a lot. Besides, a public order-book is available to arbitragers, pro traders and predators. With advanced trading algorithms and strategies, they may take advantages of the information and affect trading price quickly. One way around this is hide your intention by splitting it to a number of smaller orders and spend hours or even days to spit out all these tiny orders.
Obviously not everybody can afford the trouble and time. Another method is dark pool. Note that our version of dark pool is not identical to the dark pools run by investment banks in equity market. Ours is more like invisible orders, which get executed with all other orders together. So dark pool orders still get matched with everybody else, but in a stealth way. You hide your intention and hopefully the market price will be less volatile and every investor, big or small, is happy.
CT: Do you have anything else in the works that you are excited about?
TX: A lot of exciting things are coming up, including better API for professional users, new banking and payment processing partners around the world, stronger infrastructure to fight DDOS attacks, Bitcoin theft and fraud. And a big one coming up very soon is our fee structure change where a maker-take model will be added (many traders will love it).
We also partnering with several funds, market makers, mobile app vendors and index providers. We are also waiting for the right time to introduce margin/short trading and other derivatives. Additionally, wallet service and better merchant tools are on the way too. All of these are designed to improve security, liquidity, and service.
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